CFTC announces $14 million penalty in oil manipulation case

The Commodity Futures Trading Commission has announced that Optiver Holding BV, a Dutch company, two U.S. subsidiaries and several officers will pay $14 million to settle allegations of manipulating the oil market.

The CFTC's complaint had charged Optiver with engaging in a practice called "banging the close": attempting to manipulate the price of futures contracts by taking large positions just ahead of the close of trading.

President Obama has proposed more aggressive measures to prevent oil-market manipulation, including increasing fines to $10 million per violation and putting "more cops on the beat". 

These proposals are in addition to those provided in the Dodd-Frank Act.  Regulators are now required to prove only that traders acted "recklessly"; previously  they had to prove that they intended to manipulate prices.

The Wall St. Journal reports that the CFTC has one major oil-market manipulation case remaining.  That suit alleges that Swiss commodities trading firm Arcadia Petroleum Ltd. unlawfully manipulated and attempted to manipulate New York Mercantile Exchange (NYMEX) crude oil futures prices from January 2008 to April 2008.

Are we teaching that fraud pays?

In a recent Forbes blog post, Phillips & Cohen attorney Erika Kelton tells of students who did an off-the-cuff cost/benefit analysis of Medicaid fraud and decided it might be a good way to get rich quick.

Deterring corporate fraud can be particularly challenging. Excluding a pharmaceutical company from participating in Medicare and Medicaid may be impossible: benficiaries need those drugs. Holding individual corporate officers criminally liable has been difficult for prosecutors who can't always prove intent.

Kelton suggests increasing the cost relative to the benefit. Tailoring exclusion to a particular company division and using clawbacks to recoup executive bonuses linked to fraudulent practices could make fraud less attractive.

Washington state now has a Medicaid false claims act

Washington State Governor Christine Gregoire has signed a Medicaid fraud false claims act.

The act includes a qui tam provision, which will allow private citizens who discover fraud involving the state's heath care services to bring suit on behalf of the government. The bill notes that states with false claims acts recovered over five billion dollars between 1996 and 2009, primarily from suits relating to billing fraud, off-label marketing and withholding safety information.

The governor's signing statement recognizes that the Deficit Reduction Act of 2005 provides that the federal government will give states ten percent of any funds recovered as part of Medicaid enforcement actions brought under a state law comparable to the federal False Claims Act. The state laws are reviewed the the U.S. Dept. of Health & Human Services Office of the Inspector General to determine if they qualify for the increase.

The Washington State Medicaid Fraud False Claims Act will enter into effect on June 7, 2012.

Phillips & Cohen lawyer offers seven tips for successful whistleblower program

Mandatory percentage awards, protection of whistleblowers' identities, and encouragement of reporting through internal compliance programs are among the elements of a successful whistleblower program according to Phillips & Cohen attorney Erika Kelton.

In an article on the Forbes site Kelton points out that that the success of the US False Claims Act has resulted in the return of over $35 billion to the US Treasury. The adoption of similar legislation in other countries could benefit their taxpayers as well.

Kelton notes that the Securities & Exchange Commission had a tip line for years before Dodd-Frank created the SEC whistleblower program. But the tip line didn't motivate the agency to investigate the evidence it received of Madoff's wrongdoing. An effective program must encourage these investigations.

Britain's Serious Fraud Office, responsible for the enforcement of the Anti-Bribery Act, is facing serious cutbacks in its enforcement budget. Whistleblower incentives could promote the public-private partnerships that have made the False Claims Act such an effective tool in fighting fraud and corruption.

NY State goes easy on Medicaid audits in response to industry pressure

New York State had been off to a good start in cracking down on health care fraud. The New York Times reports that efforts under former Gov. George Pataki resulted in $1.5 billion in overpayments being recovered in 4 years and other states rushed to emulate New York.

But pressure from the politically powerful health care industry has resulted in a noticeable easing in enforcement.

In 2011 Gov. Andrew Cuomo dismissed the state's first Medicaid Inspector General, James Sheehan, a former Assistant United States Attorney well-known for his efforts against health care fraud. Sheehan had been extremely successful, exceeding recovery targets. The Times says that his successor, James Cox, was told to cooperate with providers on changes in auditing methods.

Health care compliance educational resources from OIG

The Dept. of Health and Human Services Office of the Inspector General has developed a Compliance 101 page to help health care providers, practitioners, and suppliers understand the health care fraud and abuse laws and the consequences of violating them.

The resources include webcasts, podcasts, booklets and other materials, highlighting risk areas, setting forth statutory requirements and recommending best practices for compliance programs in various settings.

Happy 25th Birthday, False Claims Act!

Although it attracted little fanfare when it was passed 25 years ago, the False Claims Act has proven to be a successful weapon in fighting fraud against the government.

The Dept. of Justice will host an event featuring key players in the law's passage, including Senators Charles Grassley and Patrick Leahy and Rep. Howard Berman, as well as attorney John R. Phillips, a founding partner of Phillips & Cohen.

"The False Claims Act is a unique statute that has become the go-to law to stop corporations and others from cheating Medicare and other government programs," said attorney Phillips, who worked closely with Congress to secure passage of the amended False Claims Act in 1986.

The passage of the law is also notable as an instance of bipartisan cooperation. As Eric R. Havian, a San Francisco attorney with Phillips & Cohen, noted, "Stopping fraud shouldn't be a partisan issue."

Proposed legislation would gut SEC whistleblower program

A recently introduced House bill has the potential to seriously undermine the effectiveness of the Security & Exchange Commission's new whistleblower program, according to attorneys at Phillips & Cohen LLP, a law firm that has represented whistleblowers for nearly 25 years.

According to the firm's Erika A. Kelton, the Whistleblower Improvement Act would actually discourage whistleblowers because it requires them to report violations to their employer, often the party committing the violation, before going to the SEC.

Eric R. Havian, a San Francisco attorney with Phillips & Cohen believes the current regulations strike the right balance. "To encourage internal reporting, the SEC will give a whistleblower a larger reward if the whistleblower reports the violations to the company's internal compliance program before going to the SEC. But the SEC wisely leaves the decision about internal reporting to the whistleblower, who would know better than anyone whether he or she would suffer retaliation."

The proposed legislation would also eliminate the requirement for a mandatory award and the mandatory minimum award to 10 percent.

The SEC whistleblower program, created in 2010 by Dodd-Frank has resulted in an increase in high-value fraud tips from two dozen a year to one or two a day.

HHS Inspector General posts training videos

As part of the Health Care Fraud Prevention and Enforcement Action Provider Compliance Training initiative, the Health & Human Services' Inspector General has posted explanatory videos. Videos on the False Claims Act, the Physician Self-Referral Law and the Anti-Kickback Statute are already available. Additional videos will be released over the next several months.

2012: Year of the Whistleblower

Top Five Predictions For Whistleblower Programs; Blockbuster Year Expected Despite Intense Corporate Opposition

WASHINGTON, DC, Dec. 28, 2011 -- The increased reach of U.S. whistleblower laws and a growing interest overseas in whistleblower programs will make 2012 the Year of the Whistleblower, predicts Phillips & Cohen LLP, a law firm that has specialized in representing whistleblowers for nearly 25 years.

A harbinger of the year to come can be seen in the flood of whistleblower submissions the Securities and Exchange Commission received in the first seven weeks after it adopted the final rules for its new program whistleblower reward program created by the Dodd-Frank Act. From August 12 to Sept. 30, the SEC received 334 whistleblower submissions.

As a result of Dodd-Frank, the U.S. now has four robust whistleblower programs that offer substantial rewards to private citizens who expose fraud against the government, investor fraud and foreign bribery by corporations: The SEC’s and the Commodity Futures Trading Commission’s programs created by Dodd-Frank; the Internal Revenue Service’s whistleblower reward program for claims exceeding $2 million; and one for Medicare fraud, defense contractor fraud and other types of fraud through the “qui tam” (whistleblower) provisions of the False Claims Act.

“The SEC and CFTC quickly recognized the value of whistleblowers and are very responsive to the information whistleblowers provide,” said Erika A. Kelton, a whistleblower attorney with Phillips & Cohen in Washington, DC. “These new programs, which are attracting high-quality information from insiders around the world, combined with the responsiveness of government agencies, will make 2012 a blockbuster year for securities and fraud enforcement. Early success also will make it difficult for Congressional opponents to dilute the highly effective SEC whistleblower program.”

Eric R. Havian, a whistleblower attorney with Phillips & Cohen in San Francisco, said he expects the five-year-old IRS program, which so far has yielded few results, to get back on track in 2012.

“The IRS has indicated that it expects to make a number of awards in 2012 and make its program more transparent so that it’s clearer whether the IRS is following up on whistleblower information,” Havian said. “Those developments, combined with the outstanding track record the IRS for protecting the identity of whistleblowers, will encourage more high-level executives to come forward with information about substantial tax law violations.”

Phillips & Cohen pioneered the use of “qui tam” whistleblower cases under the modern-day False Claims Act and is a leader in whistleblower cases brought under the False Claims Act as well as the IRS, SEC and CFTC whistleblower reward programs. Whistleblower cases brought by the firm have resulted in governments recovering more than $7 billion in civil settlements and criminal fines, making it the nation’s most successful whistleblower firm. (See www.phillipsandcohen.com.)

To read Phillips & Cohen’s Top Five predictions about whistleblower programs in 2012, see its website.